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1. Under the notion of controllability, it is most appropriate for top management to evaluate
the profitability of an investment center in terms of:
2. Which of the following is the most appropriate and comprehensive short-term financial-
performance indicator for an investment center that is a division of a larger business entity?
3. The conventional return on investment (ROI) performance measure calculates "profit"
and "investment" based on:
4. Return on investment (ROI) is the result of multiplying:
5. Determination of the useful life of an asset and choice of a depreciation method will
affect all of the following except:
6. The choice of valuation method for inventories would normally not affect which item(s)
used in calculating Return on Investment (ROI)?
7. As a general rule, leased assets should be included as part of the calculation of
"investment" (for calculating ROI and residual income) since they represent assets used:
8. Firms with high
operating leverage
tend to have:
9. Which one of the following is an advantage of both Return on Investment (ROI) and
Residual Income (RI)?
10. When investments in facilities are shared by different subunits in a firm, allocation of the
cost of these common facilities to sharing units should be determined by:
11. The difference between the historical cost and the net book value (NBV) of a plant asset
is the:
12. Use of net book value (NBV) in valuing investment in operating plant assets for
investment centers, in contrast to using an estimate current value, will:
13. The use of gross book value (GBV) for measuring the level of investment in depreciable
assets (for purposes of calculating return on investment, ROI) is preferred by those who value the
objectivity of:
14. The use of replacement cost of assets for purposes of calculating return on investment
(ROI) has the advantage of:
15. A primary limitation of return on investment (ROI) as a performance-evaluation metric for
investment centers is that ROI:
16. Return on investment (ROI) encourages business units—such as investment centers— to
invest only in projects that earn:
17. Because residual income (RI) is a dollar amount, in contrast to a percentage (as is return
on investment, ROI), RI:
18. Since residual income (RI) is not a percentage, it is not very useful for:
19. In contrast to residual income (RI), economic value added (EVA®) uses in its calculation:
20. Put simply, transfer pricing is a management tool for assigning a "price" to internally
transferred goods (or services) in order to simulate the marketplace, thus encouraging mangers
to make decisions that are in the best interest of the:
21. Because the full-cost method of transfer pricing includes fixed cost, it can:
22. Use of the market-price method (when such prices exist) satisfies a key objective of
transfer pricing, namely:
23. A key standard in international transfer pricing is:
24. The biggest problem with cost-based transfer prices is:
25. If after-tax income of Grey Division, adjusted for economic value, is 15% of sales, capital
employed is $5,000,000 (adjusted for equity-equivalents), the divisional cost of capital (discount
rate) is 8%, and sales are $12,000,000, then Economic Value Added (EVA®) is:
26. A measure of the manager's ability to
control expenses and increase revenues
to improve
profitability is:
27. A measure of the manager's ability to
produce increased sales from a given level of
investment
is:
28. The historical cost of an asset less its accumulated depreciation is:
29. Replacement cost of a division's assets will most probably be greater than:
30. Which one of the following is not a limitation shared by residual income (RI) and return
on investment (ROI) divisional performance measures?
31. The estimated cost to replicate assets of an investment center at the current level of
service and functionality of these assets is defined as:
32. The estimated price that could be received for the sale of divisional assets is referred to
as:
33. A dollar amount equal to the operating income of a division less a charge for the level of
investment in the division is called:
